What does your great wealth transfer look like?

What we call the great wealth transfer is coming… Inheritance is getting bigger. Research says it will form an ever-increasing part of current and future generations’ overall income. Have you planned and prepared for it?

A wave is coming

If you’re a millennial (born 1980-1994) then the chances are that you worry more about money than older generations do.

A survey last year said over half of millennials – and just under half of Gen Z (1995-2012) – feel depressed at least once a month because of financial uncertainty.

Our house price obsession is a case in point. Inflation-adjusted data say a typical house cost just under £120,000 in 1979, when new Chancellor of the Exchequer, Rachel Reeves, was born. But to buy that now you’d need just over £260,000. Some £53,000 of that would be the deposit.

But a little help is coming.

In fact, it’s quite a lot of help: $10.6 trillion worth.

This is the amount that experts predict will change hands, globally, though inheritance by 2030. Around $3.5 trillion of that will be in Europe.

Baby boomers (1946-1964) have in aggregate undoubtedly benefitted from property prices, jobs for life, defined benefit pensions and a host of other wealth-building factors.

Now, as the average age of baby boomers approaches retirement, that wealth will start to trickle, rush and then flood down into a great wealth transfer.

The inheritors

It’s already starting to happen in the UK.

Here, household wealth is around eight times the size of the economy. And, every year, some £100 billion is passed on through gifting or inheritance, according to recent research. That number has been doubling around every 20 years since 1979 and is expected to continue rising.

It all means that a household led by someone currently in their late 40s could inherit a sum of money, over their lifetime, that is 96 times their average monthly earnings.

This obviously isn’t going to benefit everyone. And the people behind the above research talk of “will haves” and “won’t haves”.

But if you are in scope, inheritance will play a much bigger part of your overall lifetime income than any previous generation. If you’re born in the 1980s say, then inheritance will be about 16%. Those born in the 1960s got little over half that.

Lumpy inheritance may well provide an antidote to the effects of persistent house price inflation. In other words, a generation X (1965-1979) inheritor may well use their proceeds to help millennial or generation Z children on the property ladder.

At the very least, at 16% (and probably rising) of lifetime income, inheritance will play a significant part in the future prosperity of many families.

Passing on

A wave of this scale needs to be channelled – lest it wash over, disrupt and subside.

And this is as clear a case for good advice as I can think of. Especially because intergenerational wealth planning can be a delicate issue around the Sunday lunch table.

For example, if you’re passing on the inheritance you’ll need to think about:

1. Tax. Exemptions like gifting are likely to be a key part of reducing the IHT bill paid by your loved ones. With inheritance tax at 40% for the part of your estate above the £325,000 nil rate band, reducing this tax burden is increasingly important.
2. Family structures. These affect the way in you can pass on your wealth. For instance, your child inherits your wealth and later gets divorced, their ex-spouse may have a valid claim on it. You can manage this with family structure planning.
3. Financial wellbeing. With money likely to cause anxiety – or depression, as we’ve seen – a proper plan can provide emotional comfort by prioritising what matters most.

It’s also worth bearing in mind that your inheritors may have a different approach to you. After all, younger generations attach more importance to environmental and sustainability issues. They’re more comfortable with managing wealth and finances digitally. It’s important to choose a financial planning partner who can not only handle the technical side but also these social and cultural considerations.

We’re experts in intergenerational wealth planning. If we can help you and your family with the great wealth transfer, we’d be delighted to listen. Please get in touch on hello@firstwealth.co.uk or call 020 7467 2700.

This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.